Wal-Mart Wants You to Pay Online Sales Tax

Giant retailers like Wal-Mart and Target are using mom and pop stores as human shields in their battle against Amazon.com over taxing online sales. The powerful real estate investment trusts that build bricks-and-mortar malls, along with the big box stores they rent or sell to, now want you to pay a sales tax on Internet purchases. And its being done in the name of the small merchants that were dispatched to an early grave by the likes of Wal-Mart.

But the business interests who are pushing what they call the "Main Street Fairness Act," are not exactly from Mayberry, RFD, and the competitive advantages they used to destroy Main Street merchants were certainly not a battle fought on a level playing field.

At the end of March, the Arkansas General Assembly passed legislation called the "Main Street Fairness Act," which forces online retailers to charge customers a sales tax. The Arkansas media credited the many "small business owners (who) called and wrote letters" with passage of the bill -- which the governor signed a few days later. Not a word about Arkansas-based Wal-Mart, which has been a huge booster of the legislation elsewhere. Instead, the only retailer quoted in the story was the proprietor of a small bookstore in Blytheville, Arkansas, population 16,000.

According to a Wall Street Journalarticle two weeks earlier, "Wal-Mart Stores Inc., Target Corp. and other large retailers are ratcheting up a political campaign to force Amazon.com Inc. to collect sales taxes, sensing opportunity in the budget crises gripping statehouses nationwide." The article fingers these big-box stores as the money behind the Alliance for Main Street Fairness, which is pushing an online sales tax bill in a number of states this year. One Wal-Mart official told the Wall Street Journal, "The rules today don't allow brick-and-mortar retailers to compete evenly with online retailers, and that needs to be addressed." Wal-Mart crying about fair competition?

Three weeks before Arkansas passed its "fairness" legislation, a similar bill was signed into law in Illinois. Wal-Mart issued a press release shortly after the law was signed which said:

"Gov. [Pat] Quinn has once again demonstrated he is willing to do what is right for Illinois and its businesses. During these economic times, it is vital for the state of Illinois to collect the millions of dollars of unpaid sales tax while allowing it to level the playing field for brick and mortar businesses who support our local Illinois communities."

Wal-Mart went on to pledge that it would "continue to collect and remit all sales taxes due on all Walmart.com sales to alleviate all regulatory burdens from its customers," and said the company was "committed to supporting the affiliate programs which help to drive Walmart.com's online business." The Arkansas and Illinois laws, like those in New York, North Carolina and Rhode Island, are called "affiliate nexus laws" because an online retailer's presence in a state is measured by its affiliate network. When New York passed such a law, Amazon.com sued the state.

Wal-Mart's affiliates program "allows you to earn commissions from qualifying sales when you refer customers to Walmart.com." Here's how it works: If I have a website, I place a link to Wal-Mart products on my site, and when a visitor follows those links to Walmart.com, and buys something, I get commission from Wal-Mart. Wal-Mart claims that it currently partners with more than 45 Illinois-based affiliates representing millions of dollars in revenue. If the Main Street Fairness Act forces Amazon.com to charge sales taxes because it has an affiliate network in Illinois, the online retailer will dump its affiliate network in that state in order to avoid having its sales taxed. Wal-Mart stands to make millions in additional online sales when Amazon.com pulls out of the Illinois market because it will pick up Amazon.com's former affiliate network.

National legislation with a similar intent has been filed in Congress since at least the summer of 2010. The national "Main Street Fairness Act" would allow states to mandate that large Internet and mail-order retailers collect state and local sales taxes. But first states would have to pass the Streamlined Sales and Use Tax Agreement (SSUTA), which establishes certain standard benchmarks for product definitions, uniform requirements for filing sales tax returns, and a centralized registration process. 24 states have adopted SSUTA. The Main Street Fairness Act would waive these requirements for small online retailers and catalogue companies. The legislation has the backing of groups like the National Retail Federation and the National Association of Real Estate Investment Trusts -- hardly Main Street mainstays.

Most of these state and national lobbying efforts are not being driven by mom and pop retailers, who are dangling on thin profit margins. Ironically, the national chain stores, which helped drive many of these small retailers to an early grave, are promoting the cause by wrapping themselves in a "Main Street" banner -- even though none of them are located on Main Street -- but off in some concrete bunker near the highway exit ramp. If this legislation were called the "Wal-Mart Fairness Act," no lawmaker would touch it. Big Box stores understand the importance of proper packaging. They also have learned that retailing and politics are both about salesmanship.

The Massachusetts Main Street Fairness Coalition is a perfect example of such political packaging. The coalition says, "Our local small businesses operate at a significant 6.25% price disadvantage to out-of-state, online businesses, leading to fewer sales at brick-and-mortar establishments who contribute so much to our community."

But the "local small businesses" in the Massachusetts Coalition are powerful lobbying groups like the Retailers Association of Massachusetts, which is well-stocked with retail chains on its Board of Directors, including Wal-Mart, Target, Sears, BJs, The Gap, and J.C. Penney. RAM has fought sales tax hikes for years, and in 2010 spent $168,686 lobbying on Beacon Hill over issues like "unencumbered" online retailers. This week the International Council of Shopping Centers testified at a legislative hearing in Boston on behalf of the online sales tax, estimating that Massachusetts may be losing as much as $355 million in uncollected online sales taxes.

Whatever you think this online sales tax debate is about -- it is not about Main Street, and it is not about tax fairness. It is a clash between large real estate/national chain stores vs. large online retailers. Mom and Pop has little to do with it. If a sales tax is ever imposed on Internet sales, the financial burden will fall on low-income and middle class households -- not the big corporations who are tussling over market shares.

The sales tax is a very regressive, blunt instrument, and millions of online shoppers should not blame Main Street businesses if this tax ever comes to pass. You can thank companies like Wal-Mart for the extra charge on your order.

Al Norman is the founder of Sprawl-Busters. He has been helping communities fight big box sprawl for 17 years.